The Affine Arbitrage-Free Class of: Nelson-Siegel Term Structure Models

Jens H. E. Christensen, Francis Diebold () and Glenn Rudebusch ()

No 13611, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We derive the class of arbitrage-free affine dynamic term structure models that approximate the widely-used Nelson-Siegel yield-curve specification. Our theoretical analysis relates this new class of models to the canonical representation of the three-factor arbitrage-free affine model. Our empirical analysis shows that imposing the Nelson-Siegel structure on this canonical representation greatly improves its empirical tractability; furthermore, we find that improvements in predictive performance are achieved from the imposition of absence of arbitrage.

JEL-codes: G1 G12 (search for similar items in EconPapers)
Date: 2007-11
Note: AP EFG IFM
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Related works:
Working Paper: The affine arbitrage-free class of Nelson-Siegel term structure models (2007)
Working Paper: The Affine Arbitrage-Free Class of Nelson-Siegel Term Structure Models (2007)
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